Ground lease powerhouse Safehold scored a $24 million investment from a group that includes NBA superstar Kevin Durant and Fanatics founder Michael Rubin’s family office. The deal marks the first outside investment in Safehold’s subsidiary Caret Ventures, which allows investors to tap into the capital appreciation of current and future Safehold ground leases. It provides investors a new way to make money on ground leases outside of rental streams. [TRD]
The investment group, including Ribbit Capital, Fifth Wall and Zigg Capital, purchased so-called “Caret Units” — essentially shares of Caret Ventures. In total, the investors bought 1.37 percent of the Caret Units. The investment implies a total Caret Unit valuation of an eye-popping $1.75 billion, according to Safehold.
“This initial Caret Unit sale is a key first step and marks an important milestone for Safehold by helping to unlock a meaningful component of value within the platform,” said Jay Sugarman, Safehold’s chairman and CEO. The deal marks the first of its kind not only for Safehold, but also for the entire ground leasing business.
Safehold, a publicly traded REIT managed by iStar, makes a lot of money in a business that is decidedly unglamorous, if not boring. A ground lease splits a property from the land underneath. No ribbon-cuttings or topping-off ceremonies are involved.
But the new investment does have a curious twist. Safehold has to provide a public market or securities exchange for the Caret Units in the next two years that allows their new owners to at least recoup their investment. Otherwise, they will be able to redeem the units at their original purchase price, according to an investor presentation.
Safehold will still own 84 percent of the outstanding Caret Units, while Safehold’s management team will own about 15 percent. The company said the goal of Caret Ventures is to capture “unrealized capital appreciation” in its portfolio which is realized when a ground lease expires or land is sold. It says that its unrealized capital appreciation totaled $8.1 billion as of December. Safehold’s stock closed up nearly 4 percent to $65 Tuesday. [TRD]
